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March 16, 2009
Mortgage Cramdown Plan Hits Turbulence in Senate
A central piece of President Barack Obama's plan to aid strapped homeowners is running into turbulence in the Senate as Democrats scramble to secure support from both parties' moderates, according to Friday's Wall Street Journal Democratic leaders have long sought such a cramdown provision for homeowners. But in the Senate, the measure has become a flash point for tensions between lawmakers who seek to aid homeowners - in particular, homeowners who owe more than their house is worth - and lawmakers who feel such assistance penalizes people who have kept up with their debts. The bill needs 60 Senate votes to clear a procedural hurdle to passage, and Democratic aides say they are several votes shy. They had hoped the bill would reach a vote before the April recess, but it has yet to be scheduled. Senate aides involved in the talks say that timing may slip further. Financial institutions have long fought against court-ordered mortgage workouts, saying they would add risk to lenders, raise mortgage rates and clog courts. Mortgages have long been excluded from personal-bankruptcy filings. The House bill is already substantially weaker than one crafted by senators several weeks ago. It limits cramdowns to existing mortgages; loans made in the future wouldn't qualify. Bankruptcy judges can write down a primary mortgage only if the borrower can show efforts to modify the loan were made prior to filing for bankruptcy. Read more (subscription required).
The Obama administration, moving with increasing speed, has inked the main contours of its plan to revamp financial-market oversight, according to today's Wall Street Journal. These changes will ripple through the economy, affecting everything from the operations of international banks to consumer protection. The principles include giving the Federal Reserve new powers that include authority to monitor and address broad risks across the economy. The proposals are expected to include tougher capital requirements for big banks and authority for regulators to take over a large financial firm that is failing. A few elements remain unclear, in particular whether the administration will embrace one of House Financial Services Committee Chairman Barney Frank's (D-Mass.) more controversial proposals: Letting state attorneys general prosecute national banks. It is also unclear whether the administration will call for restrictions on compensation of bank executives, another issue Rep. Frank has pushed. A major component of the plan would be new clout for the Federal Reserve, which has accumulated large new powers since the financial crisis began. Under the regulatory overhaul, major financial institutions would face tougher capital requirements. The level of capital is typically seen as an important component of a bank's health because it is a cushion against unexpected losses. Any proposed changes would be controversial because the various state and federal agencies that oversee financial services regularly jostle for turf. Read more (subscription required).
name='3'>GM to Drop Name From Asset-Management Arm
General Motors Corp. is making another push to market its asset management services to other companies by dropping its name from the in-house unit that already oversees $132 billion in funds, the Wall Street Journal reported today. The automaker said today that it will re-brand General Motors Asset Management (GMAM) as Promark Global Advisors Inc. in an effort to win more external business alongside its oversight of GM's own pension plans for employees in the United States, Canada and some other countries. GM accounts for around 80 percent of managed funds, with outside employee benefit plans, foundations and other clients making up the balance. The move comes eight years after GMAM first moved beyond managing money for the auto sector - it still has the account for bankrupt parts maker Delphi Corp. - by winning a contract to oversee funds for Xerox Corp., the copier maker. The re-branding exercise represents a marketing about-face for GMAM, which had previously highlighted its relationship with the auto maker as a strength. Some of GMAM's senior executive team, including its CFO and chief operating officer, joined from GM or its GMAC financing arm. The New York-based group, wholly owned by GM, employs about 140. Under the name change, General Motors Trust Bank, N.A. will be known as Promark Trust Bank, N.A.; and the funds it manages with Promark Global Advisors are called the Promark Funds. Read more (subscription required).
name='4'>Masonite Files for Bankruptcy to Restructure Debts
Masonite International, the door and fiberboard maker taken over by leveraged buyout firm Kohlberg Kravis Roberts & Co., filed for bankruptcy protection as part of a plan to cut its debt by almost $2 billion, Bloomberg.com reported today. Masonite listed $1.53 billion in assets and $2.64 billion in debts in the chapter 11 filing today in U.S. Bankruptcy Court in Wilmington, Del. The company said it also filed for protection from creditors in Canada. Masonite said the reorganization will enable it to reduce almost all of its debt and to reduce its annual cash interest costs by about $145 million. Masonite has been soliciting creditor support for a debt-restructuring deal, the company said in a statement on March 9. Read more.
name='5'>Gas Producers Forced Into Bankruptcy
An increasing number of U.S. natural gas producers are being forced into bankruptcy or asset sales by banks, which are using annual reviews of company debt to cut permittable levels below existing borrowings, the Financial Times reported Sunday. The credit squeeze has left producers with few choices in terms of raising new finance when confronted with repaying debt immediately. In addition, the severe drop in commodity prices has slashed the value of their assets. In the past two weeks, there have been eight announcements of forced sales, bankruptcy filings and notices of possible filings, as banks have completed their annual reviews. Pacific Energy Resources filed for chapter 11 bankruptcy protection, citing a 'drastic fall in the price of crude oil' near the end of last year. Meanwhile, DayStar Oil & Gas is offering assets through chapter 11 in southeastern Texas. The most recent warning came from Edge Petroleum, which told regulators last Wednesday it had a $114 million borrowing-base deficiency, due to a redetermination of the companyÕs borrowing base from $239 million to $125 million. Read more.
name='6'>G-20 Officials Pledge Greater IMF Funding
Finance officials from 20 of the world's leading economies pledged Saturday to substantially boost funding for the International Monetary Fund and 'take whatever action is necessary' to stimulate growth around the world, the Washington Post reported Sunday. The meeting came after days of disagreement between U.S. and European officials about the best approach to tackling the economic problems. The United States has urged countries to enact bigger spending programs to fuel growth, while some European countries have focused on passing new regulations for financial markets. The Group of 20 finance ministers, whose countries account for 85 percent of the world's economy, said in a joint statement that they have taken decisive action to 'boost demand and jobs' and would continue to take action until growth is restored. They said that a 'key priority' was to boost lending and that new regulations were needed for hedge funds and other financial institutions in the 'shadow banking' system. U.S. Treasury Secretary Timothy F. Geithner said there was broad agreement on the global prescription for the crisis. U.S. officials asked that the IMF's funding be tripled to $750 billion. Although the amount has not yet been worked out, the finance ministers agreed to a 'very substantial' increase. Geithner said there was also consensus that 'a more fair and balanced governing system' was needed. The meeting sets the stage for an April 2 summit in London at which President Obama and other heads of state of the G-20 countries will attend. Alistair Darling, Britain's finance minister, said that he was especially concerned about developing countries and that 90 million people around the world could slip into poverty because of the crisis. Read more (free subscription required).
name='7'>Atlantic City Shows Gambling Isn't Recession-proof
Business at Atlantic City's 11 casinos is falling at a record pace, according to a Reuter's report on Sunday. Aggregate revenue plunged 19.2 percent in February from a year earlier, the sharpest decline in the 30 years since gambling was legalized in the city, according to the New Jersey Casino Control Commission. Three of the city's casinos, those operated by Trump Entertainment, are in bankruptcy following a court filing by Trump on Feb. 17. Two new resorts planned by Pinnacle and MGM Mirage have been scrapped because financing is unavailable in the tight credit market. On March 6, Pinnacle said it was seeking a buyer for the beachfront land where it had hoped to build a $1.5 billion resort. Revel Entertainment is moving ahead with plans to build a $2 billion resort, but the project has been delayed because of difficulty securing financing. Projects like Revel, which combine gambling, entertainment and hotel accommodation, are crucial to Atlantic City's future. That formula has been followed by the city's newest resort, the Borgata, which has fared better than its competitors. Read more.
name='8'>Report: AIG CEO Slated for Congress Testimony
Edward Liddy, CEO of American International Group Inc., is expected to testify on Wednesday at a U.S. congressional hearing on the bailout of the troubled insurer, two congressional aides said in a Reuters report on Saturday. Liddy is scheduled to appear with other witnesses before the House of Representatives capital markets subcommittee. The company's bonus pay practices are expected to be one focus of the session, as well as the impact on the economy of AIG's problems and the government's efforts to save it. Once the world's largest insurer, AIG has been bailed out three times by taxpayers for a total of up to $180 billion. The company agreed on Saturday to revamp its system for paying bonuses after the Obama administration objected to plans for hundreds of millions of dollars in such payouts. Separately, AIG is expected to disclose the identity of counterparties to the credit default swaps it wrote to guarantee complex debt securities, a source close to the company said on Saturday. Read more.
name='9'>Eclipse Aviation Customers to Buy Assets Out of Bankruptcy
An owner of Eclipse Aviation Corp. said he has found enough customers to buy the company out of bankruptcy, according to Sunday's Albany, N.Y, Business Review. About 20 customers have expressed interest in buying the Albuquerque, N.M.-based company, said Mike Press, one of the earliest owners of the company. Eclipse, which manufactured light, high-performance jet aircraft and employed 1,000 in the United States, filed for bankruptcy in November, when it said it owed more than $1 billion in debts. Press said he expects he'll have the firm commitment from customers to buy the company within the next two to three weeks. Read more.
Fleetwood Enterprises of Riverside Files for Chapter 11
Fleetwood Enterprises, a maker of recreational vehicles, mobile homes and 'pre-fab' housing, has filed for chapter 11 bankruptcy after 59 years in business, according to MSNBC.com on Saturday. The Riverside, Calif.-based company announced Tuesday that it would keep its business in operation while it shops for a buyer. However, its travel-trailer division though will be shut down, and that could mean unemployment for 667 people nationwide including 12 at the company's center in Rialto, Calif. Sixty-five workers in corporate positions were laid off Monday but more than 600 workers remain in Riverside. Read more.
name='11'>MGM Mulling Breakup to Pay Debts
MGM Mirage, which has warned it could breach its credit agreements this year if the economy doesn't rebound, may break itself up to lure potential buyers as it races to raise the more than $1.5 billion it owes in bond payments and interest this year, the Wall Street Journal reported on Saturday. Buyers have reportedly been 'sizing up' several of the casino operator's separate properties, including the Bellagio and the MGM Grand Detroit. If the company is unable to amend terms or receive a waiver, its bank lenders could accelerate repayment of the loans and, under certain circumstances, defaults on its other debt may be triggered, MGM has said. Read more.
name='12'>Judge Approves Strasburg DIP Financing
Bankrupt Strasburg-Jarvis Inc. has collected up to $5.06 million in debtor-in-possession financing as it tries to pay down its senior lender and reorganize, according to TheDeal.com on Friday. Judge Robert D. Berger of the U.S. Bankruptcy Court for the District of Kansas in Kansas City on March 12 gave the Lenexa, Kan., children's clothing retailer interim access to the DIP from prepetition lender Harrington Bank. The DIP rolls over $4.9 million in prepetition debt from Harrington. The loan consists of a $2.86 million revolver and a $2.2 million term loan and appears to contain about $160,000 in new money, given that $2.7 million was outstanding on the revolver as of Strasburg's bankruptcy filing. Although the terms of the DIP are much friendlier than most recent fundings, the loan does carry some restrictions. Strasburg has agreed that Harrington will be able to file its own reorganization plan after 180 days. The revolving credit line will also shrink to $2.8 million by Oct. 31 and to $2.7 million by Jan. 31. Strasburg filed for chapter 11 on March 11 and operates 84 outlets in 25 states. Read more.
name='13'>American Axle the Latest Auto Supplier Fighting for Survival
In an SEC filing, American Axle & Manufacturing Holdings Inc. warned it may not be able to meet its debt requirements in 2009 if GM and Chrysler LLC further decline, according to TheDeal.com on Friday. 'Should we fail to be in compliance with these covenants and we are unable to obtain a waiver or amend these covenants, we may be unable to continue as a going concern,' the company stated. A recent Grant Thornton survey found that 500 auto parts suppliers may be at a high risk for bankruptcy in the next three months. Read more.
name='14'>CDS Wins Interim Use of Cash
Bankrupt CDS Manufacturing Inc. can use its cash collateral to fund operations after reaching an agreement with one of its secured creditors, TheDeal.com reported Friday. Judge Lewis M. Killian Jr. of the U.S. Bankruptcy Court for the Northern District of Florida in Tallahassee signed an order allowing the Quincy, Fla.-based producer of precast and prestressed concrete products to use its cash collateral on an interim basis March 11, court papers said. CDS, which is involved with heavy infrastructure projects such as the building of roads and bridges, will be back in court on March 23 for a hearing on GE Commercial Finance's relief from stay. CDS filed for chapter 11 on Feb. 11, saying it plans to reorganize and is not seeking the use of debtor-in-possession financing. Read more.
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